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Started By
Message
401K Loan vs. Withdrawal
Posted on 6/3/24 at 4:27 pm
Posted on 6/3/24 at 4:27 pm
I have about $10,000 in credit card debt that I am trying to pay off. I have excel spreadsheet crunched the numbers and with my salary and my current bills I am left with just enough to pay on the card and the interest and not really make the depth go down any. I don't have the opportunity to work OT at my job BUT I work 40 hours every week and that is not changing unless I change jobs so I have pretty consistent money coming in.
I have just under $200,000 in a 401K through my job. I am no where close to retirement age so any money I take out of the 401K is going to be taxed and fees taken out. I read online that I can withdraw early from my 401K as long as I realize I will get hit with a fee and taxed on the amount come next tax season. Or I can do a 401K loan and pay myself back over time, but honestly this option just feels like moving my debt pile to another pile and not really paying it off.
So I figured I can take $15,000 out of the 401K, use the $5,000 for fees and eventual taxes and use the remaining $10,000 to pay off the debt and begin using that money, I would have been paying into the credit card, to go into savings. Also with how much I contribute, I figured will make back the $15,000 in the 410K quickly and will not miss it come glorious retirement day.
Right now I see that as my best option but I figure there has to me another risk I am not thinking about, so what is it?
I have just under $200,000 in a 401K through my job. I am no where close to retirement age so any money I take out of the 401K is going to be taxed and fees taken out. I read online that I can withdraw early from my 401K as long as I realize I will get hit with a fee and taxed on the amount come next tax season. Or I can do a 401K loan and pay myself back over time, but honestly this option just feels like moving my debt pile to another pile and not really paying it off.
So I figured I can take $15,000 out of the 401K, use the $5,000 for fees and eventual taxes and use the remaining $10,000 to pay off the debt and begin using that money, I would have been paying into the credit card, to go into savings. Also with how much I contribute, I figured will make back the $15,000 in the 410K quickly and will not miss it come glorious retirement day.
Right now I see that as my best option but I figure there has to me another risk I am not thinking about, so what is it?
15
Posted on 6/3/24 at 4:34 pm to Agro70
What would happen if you took the loan and then left your job for whatever reason before paying it off? Would that change the terms of the loan?
Posted on 6/3/24 at 4:35 pm to Agro70
Withdrawing from the 401k should be the absolute last option.
I would consider transferring the $10K to a 0% interest credit card and try to pay it over the 12 or 18mo term.
But obviously the preferred option is figure out how to pay down the $10k naturally.
I wouldn't take out a 401k loan for $10 cc debt but that's a better plan than withdrawing from the 401k.
I would consider transferring the $10K to a 0% interest credit card and try to pay it over the 12 or 18mo term.
But obviously the preferred option is figure out how to pay down the $10k naturally.
I wouldn't take out a 401k loan for $10 cc debt but that's a better plan than withdrawing from the 401k.
Posted on 6/3/24 at 4:49 pm to hiltacular
quote:
wouldn't take out a 401k loan for $10 cc debt but that's a better plan than withdrawing from the 401k.
This.
Posted on 6/3/24 at 4:53 pm to Agro70
How much are you contributing to your 401K? Can you pause your contribution freeing up income to pay down debt then resume the contributions.
Posted on 6/3/24 at 5:20 pm to CEB
Do you own a home?
Posted on 6/3/24 at 5:38 pm to CEB
quote:
How much are you contributing to your 401K? Can you pause your contribution freeing up income to pay down debt then resume the contributions.
Came to say this. Don’t take 401k withdrawal or loan
Cut back on your contributions to get the company max only. Open a new credit card with 0% for the first year and pay it off in 12 months.
Posted on 6/3/24 at 5:44 pm to Agro70
Pretty much take the withdrawal off the table.
If, 401k loans is going to make you cut back on contributions so you can pay yourself back on the loan, take that off the table as well.
As others have said, try to work some other things out. But if you absolutely MUST, then do a 401K loan that will not affect your contributions moving forward.
If, 401k loans is going to make you cut back on contributions so you can pay yourself back on the loan, take that off the table as well.
As others have said, try to work some other things out. But if you absolutely MUST, then do a 401K loan that will not affect your contributions moving forward.
Posted on 6/3/24 at 6:35 pm to Agro70
What is your 401k contribution rate? Can you reduce that and use that to pay down the debt?
I'm not saying 100% don't do the withdrawal, but there might be better ways. Even if you dropped the contribution to $0 and give up the match while you're paying down the $10k, is likely to be a better overall outcome than a withdrawal with taxes/penalty, IMHO.
I'm not saying 100% don't do the withdrawal, but there might be better ways. Even if you dropped the contribution to $0 and give up the match while you're paying down the $10k, is likely to be a better overall outcome than a withdrawal with taxes/penalty, IMHO.
Posted on 6/3/24 at 7:09 pm to hiltacular
quote:
wouldn't take out a 401k loan for $10 cc debt but that's a better plan than withdrawing from the 401k.
I understand the thought but with CCs getting 29.9%...if he is disciplined and doesn't use his card anymore the loan might be an okay option.
Posted on 6/3/24 at 8:43 pm to Diseasefreeforall
quote:
What would happen if you took the loan and then left your job for whatever reason before paying it off? Would that change the terms of the loan?
Most plans make the loan due upon separation, so OP would either have to take it as an early withdrawal or get a loan to payoff the 401k loan.
To OP, check out the 0% credit card options. You can transfer your debt to this card for a 5% upfront hit. Pay on it for 12-18 months; then repeat as necessary or until you feel comfortable letting it ride on the new card.
Withdrawal should be the last resort, 401k loan should be 2nd to last.
Posted on 6/3/24 at 10:08 pm to Weekend Warrior79
quote:
To OP, check out the 0% credit card options. You can transfer your debt to this card for a 5% upfront hit. Pay on it for 12-18 months; then repeat as necessary or until you feel comfortable letting it ride on the new card.
Yep, this and pick up gig work like Uber or door dash…sell random crap around your house on Facebook marketplace…anything to make the extra $10k even faster
Posted on 6/3/24 at 10:15 pm to Agro70
find another stream of income. stop relying on just a JOB for your only source of income.
have you no dividend paying stocks/ETF's? No rental property? Do you know how to trade? AMAZON FBA? youtube automation? Lending?
find another income stream. if u are only working 40 hours that is not shite. if you have no other income streams, Find a second job then somewhere, somehow. make your wife do the same. you should be working 60-70-80 hours a week until that is paid off. taking out a 401k loan for that is fricking stupid.
good luck!
have you no dividend paying stocks/ETF's? No rental property? Do you know how to trade? AMAZON FBA? youtube automation? Lending?
find another income stream. if u are only working 40 hours that is not shite. if you have no other income streams, Find a second job then somewhere, somehow. make your wife do the same. you should be working 60-70-80 hours a week until that is paid off. taking out a 401k loan for that is fricking stupid.
good luck!
This post was edited on 6/5/24 at 10:32 am
Posted on 6/3/24 at 11:23 pm to Agro70
It will take approximately 26 months to pay off the $10,000 credit card balance with a $500 monthly payment at a 25% annual interest rate.
It will take approximately 12 months to pay off the $10,000 credit card balance with a $1,000 monthly payment at a 25% annual interest rate.
It will take approximately 12 months to pay off the $10,000 credit card balance with a $1,000 monthly payment at a 25% annual interest rate.
Posted on 6/4/24 at 6:22 am to Agro70
Get a second job and pay you credit card debt off. This will teach you to learn your lesson about not being selfish and irresponsible in your spending.
Life isn’t easy. Grow up and be an adult.
Life isn’t easy. Grow up and be an adult.
This post was edited on 6/4/24 at 6:24 am
Posted on 6/4/24 at 7:32 am to Agro70
Hit garage sales and thrift stores like antiquetiger and sell stuff on ebay. You can have it paid off in 6 months if you get out and hustle. Maybe sooner depending how hard you do it.
Posted on 6/4/24 at 8:59 am to Agro70
Not to "Dave Ramsey" it up here but I tend to agree with him when people try and take shortcuts to "payoff" things like C.C. debt, they just get right back into C.C. debt shortly after because no lesson was learned. You need to feel a little pain as you pay this off to remember why you dont want to get back into this.
1. Cut back on some expenses, go through subscriptions you have, eating out, etc....you will find money and for stuff you dont really care about
2. Sell some stuff you maybe dont care about
3. Find an extra source of income, we live in a society today you can make extra income extremely easily. Find something to do when you're off work for a couple hours maybe a few times a week to earn extra income
Once you do stuff like that, paying off $10k will look a lot easier than it does right now. I agree with some other transferring that to a 0% credit card for 12-18 months would be a good idea as long as you understand you set yourself to pay it off in that 0% time frame. Do not spend a penny on either credit card, just pay off the new card in the 12-18 month promotional period.
If you have $10k they will charge $300 (3%) to balance transfer probably. Over 18 months you can pay $573/mo and have that paid off completely with no interest. Over 12 months it would be $859/mo with no interest.
1. Cut back on some expenses, go through subscriptions you have, eating out, etc....you will find money and for stuff you dont really care about
2. Sell some stuff you maybe dont care about
3. Find an extra source of income, we live in a society today you can make extra income extremely easily. Find something to do when you're off work for a couple hours maybe a few times a week to earn extra income
Once you do stuff like that, paying off $10k will look a lot easier than it does right now. I agree with some other transferring that to a 0% credit card for 12-18 months would be a good idea as long as you understand you set yourself to pay it off in that 0% time frame. Do not spend a penny on either credit card, just pay off the new card in the 12-18 month promotional period.
If you have $10k they will charge $300 (3%) to balance transfer probably. Over 18 months you can pay $573/mo and have that paid off completely with no interest. Over 12 months it would be $859/mo with no interest.
Posted on 6/4/24 at 9:05 am to BabyTac
quote:
This will teach you to learn your lesson about not being selfish and irresponsible in your spending.
Life isn’t easy. Grow up and be an adult.
I wish we all had the privileged life you had
Posted on 6/5/24 at 10:29 am to Agro70
quote:
Agro70
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